UNIT 8

COMPUTATION OF TOTAL TAXABLE INCOME OF AN INDIVIDUAL

8.1 Gross Total Income (GTI)

As per section 14, all income shall, for purposes of Income-tax and computation of total income, be classified under the following heads of income:

1. Salaries,
2. Income from House Property,
3. Profits and Gains of Business or Profession,
4. Capital Gains,
5. Income from Other Sources.

Aggregate of incomes computed under the above 5 heads, after applying clubbing provisions and making adjustments of set off and carry forward of losses, is known as Gross Total Income (GTI). [Section 80B(5)]

Deductions under chapter VI A

Basic Rules

1. Deductions not available from: Deductions under chapter VIA are not available from -

• Long-term capital gain;
• Short term capital gain covered u/s 111A (i.e., STCG on which STT is charged); and
• Casual income like winning from lotteries, races, etc.

2.     Limit of deduction: The aggregate amount of deduction under chapter VIA cannot exceed Gross Total Income of the assesse excluding -

• Long term capital gain;
• Short term capital gain covered u/s 111A;
• Casual income like winning from lotteries, card-games, horse races, etc.; and
• Income referred in Sec.115A, 115AB, 115AC, 115ACA, etc.

3.     Deduction must be claimed: Deduction under chapter VIA shall be available only if the assesse claims for it.

4.     Double deduction not permissible: Where deduction under any section of chapter VIA has been claimed then the same shall not qualify for deduction in any other section.

8.2 Deduction under Section 80C

Applicable to: An Individual or a Hindu Undivided Family (whether resident or non-resident)

Condition to be satisfied: Assessee has made a deposit or an investment in any one or more of the listed items (as given below) during the previous year.

Various options under 80C:

1. Investment in Life Insurance Premium (LIC)

Maximum Premium allowed is 20% of Sum Assured

2.     Investment/Contribution in Public Provident Fund (PPF)

3.     Investment in National Savings Certificate (NSC)- VIII or IX issue

4.     Contribution for participating in the Unit-linked Insurance Plan (ULIP) of Unit Trust of India (UTI) or ULIP of LIC Mutual fund u/s 10(23D) formerly known as Dhanraksha 1989.

5.     Sum paid to effect or keep in force a contract for notified annuity plan of the LIC or any other insurer.

6.     Subscription to notified units of a specified Mutual fund u/s 10(23D)/ administrator or the specified company as referred in sec. 2 of UTI (ELSS, 2005).

7.     Any sum paid as subscription to Home Loan Account Scheme or notified pension fund of the National Housing Bank.

8.     Any sum paid as subscription to a notified deposit scheme of Public sector companies or Any authority constituted in India for the purpose of satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or for both.

9.     Repayment of Principal amount of Housing Loan.

10. Investment in Debentures/Equity shares of a Public Financial Institution.

11. Subscription to units of any mutual fund u/s 10(23D) provided amount of subscription to such units is subscribed only in the eligible issue of capital.

12. Investment as term deposit for a period of 5 years or more with a scheduled bank.

13. Notified Bonds issued by the National Bank for Agriculture and Rural Development (NABARD).

14. Senior Citizens Savings Scheme Rules, 2004

15. 5 year time deposit in an account under the Post Office Time Deposit Rules, 1981

Deductions only for Individuals:

1. Contribution made towards statutory provident fund (SPF) and recognised provident fund (RPF).
2. Contribution made towards approved superannuation fund (ASAF).
3. Contribution to Sukanya Samriddhi Account Scheme.
4. Contribution to any notified pension fund set up by a Mutual Fund u/s 10(23D) or by the administrator or the specified company referred u/s 2 of the UTI.
5. Any payment of tuition fees to any university, college, school or other educational institution situated within India for the purpose of full-time education. Restriction on number of child: Deduction shall be allowed in respect of maximum 2 children.

Quantum of Deduction:

Deduction under this section shall be minimum of the following:

● Aggregate of the eligible contributions, expenditure or investments (discussed above)

● Rs 1,50,000

8.3 Deduction under Section 80CCC

Contribution to Pension Fund of LIC or any other insurer

Applicable to: An individual (irrespective of residential status or citizenship of the individual)

Condition to be satisfied

1. Amount paid under an annuity plan: During the previous year, assessee has paid or deposited a sum under an annuity plan of the Life Insurance Corporation of India (LIC) or any other insurer for receiving pension from the fund referred to in Sec. 10(23AAB).

2. Payment out of taxable income: The amount must be paid out of income which is chargeable to tax. However, it is not necessary that such income relates to current year.

Quantum of deduction

Minimum of the following -

a) Amount deposited; or

b) Rs 1,50,000

Other Points

a)     Treatment of Interest or Bonus accrued: Interest or bonus accrued or credited as per the scheme to the assessee’s account shall not be eligible for deduction.

b)    Withdrawal from such fund [Sec. 80CCC(2)]: Any amount received by the assessee or his nominee as pension; or on surrender of such annuity is taxable in the hands of recipient in the year of receipt.

Note: Interest or bonus received from such fund shall also be taxable.

c)     Deduction u/s 80C [Sec.80CCC(3)]: Deduction u/s 80C will not be available for the amount paid or deposited and for which deduction has been claimed u/s 80CCC.

8.4 Deduction under Section 80CCD

Contribution to Pension Fund of Central Government (New Pension System or Atal Pension Yojna)

Applicable to: An individual

Condition to be satisfied

During the previous years, the assessee has paid or deposited any amount in his account under a pension scheme notified by the Central Government (New Pension System and Atal Pension Yojna).

Quantum of Deduction

Deduction u/s 80CCD(1)

A. In case of salaried individual

Lower of the following         Rs

● Amount so paid or deposited        ***

● 10% of his salary in the previous year       ***

***

Add: The whole of the contribution made by the employer to such

Account to the maximum of 10% of his salary1 in the previous year.  ***

Amount of Deduction         ***

B. In case of other individual

Lower of the following

● Amount so paid or deposited

● 20% of his gross total income in the previous year

Additional Deduction u/s 80CCD(1B)

Lower of the following shall also be eligible for deduction    Rs

● Contribution to the scheme by any individual [Other than amount

Claimed and allowed as deduction u/s 80CCD(1)]     ***

● Rs 50,000

*Salary means Basic + DA

8.5 Deduction under Section 80CCE

The aggregate amount of deductions under section 80C, section 80CCC and section 80CCD [other than deduction in respect of employer’s contribution and additional deduction u/s 80CCD(1B)] shall not exceed Rs 1,50,000.

8.6 Deduction under Section 80D

Medical Insurance Premium

Applicable to: An individual or an HUF (irrespective of residential status or citizenship)

Conditions to be satisfied

1. Payment for health insurance or medical check-up: The assessee has made payment for health insurance of the following person:

2.     Mode of payment: The premium or medical expenditure must be paid by any mode other than cash. However, payment shall be made by any mode, including cash, in respect of any sum paid on account of preventive health check-up.

8.7           Deduction under Section 80E

Interest on Educational Loan

Applicable to: An Individual (irrespective of residential status and citizenship of the individual).

Conditions to be satisfied

1. Loan from specified institution: The assessee had taken a loan from -

• a financial institution; or

• An approved charitable institution

2. Purpose of loan: The loan must have been taken for the purpose of pursuing higher education of himself/herself or for any other following persons:

a. Spouse

b. Children (dependent or not); or

c. The student for whom the individual is the legal guardian

“Higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so

3. Payment of interest: The assessee pays interest on such loan.

Quantum of deduction: Amount paid during the year by way of payment of interest.

Maximum permissible period for which deduction is available

Deduction under this section shall be allowed for the initial assessment year and 7 assessment years immediately succeeding the initial assessment year* or until interest is paid by the assessee in full, whichever is earlier.

*Initial Assessment Year means the assessment year relevant to the previous year, in which the assessee starts repaying the loan or interest thereon.

Taxpoint

■ The deduction is available for a maximum period of 8 consecutive years.

■ The period starts from the year in which the assessee starts paying the interest on such loan.

8.8           Deduction under Section 80G

Donations to Certain Funds

Applicable to: All assessee (irrespective of residential status and citizenship of the assessee).

Conditions to be satisfied

1. Donation: Assessee must donate (not in kind) to specified Funds or Organisations (as listed below).

Taxpoint: Donation in kind shall not qualify for deduction

2. Mode of donation: Donation in excess of Rs 2,000 shall be made by any mode (but not in kind) other than cash.

Taxpoint: Cash donation upto Rs 2,000 shall qualify for deduction.

3. Proof of donation: Proof of donation, in original, should be attached with the return of income.

Other Points

1. Specified funds or organizations: Specified Funds or Organisations are divided into two categories:

1. On which limit is not applicable (Item No.1 to 25 given in the list) (hereinafter referred as Category A Organisation).
2. On which limit is applicable (Item No.26 to 32 given in the list) (hereinafter referred as Category B Organisation).

b.     Double deduction is not permissible: Where deduction under this section has been allowed, the same shall not qualify for deduction under any other section for the same or any other Assessment Year.

Taxpoint:

• The limit is applicable only on category B organizations or funds.
• The limit is applicable on qualifying amount of donation and not on deduction.
• The limit is not on individual donation but on aggregate donation.

List of Funds

1. National defence fund set up by the Central Government    NA  100%

2. Jawaharlal Nehru Memorial Fund       NA  50%

3. Prime Minister’s Drought Relief Fund       NA  50%

4. Prime Minister’s National Relief Fund       NA  100%

5. Prime Minister’s Armenia Earthquake Relief Fund     NA  100%

6. Africa (Public Contributions- India) Fund      NA  100%

7. National Children’s Fund         NA  100%

8. Indira Gandhi Memorial Trust        NA  50%

9. Rajiv Gandhi Foundation         NA  50%

10. National Foundation for Communal Harmony      NA  100%

11. An approved university or educational institution of national eminence  NA  100%

12. The Chief Minister’s Earthquake Relief Fund, Maharashtra.    NA  100%

13. Any fund set up by the Government of Gujarat for providing relief to

Victims of earthquake in Gujarat        NA  100%

14. Zila Saksharta Samiti         NA  100%

15. National or State Blood Transfusion Council      NA  100%

16. Fund set up by a State Government for medical relief to the poor   NA  100%

17. Army Central Welfare Fund or Air Force Central Welfare Fund or Indian

Naval Benevolent fund         NA  100%

18. Andhra Pradesh Chief Minister’s Cyclone Relief Fund    NA  100%

19. National Illness Assistance Fund       NA  100%

20. Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund   NA  100%

21. National Sports Fund or National Cultural Fund or Fund for Technology

Development and Application set up by the Central Government   NA  100%

22. National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental

Retardation and Multiple Disabilities       NA  100%

23. Swachh Bharat Kosh*         NA  100%

24. Clean Ganga Fund (Only for resident donor)*      NA  100%

25. National Fund for Control of Drug Abuse      NA  100%

26. Any other fund or any institution which satisfies conditions mentioned in

Sec 80G(5)           Limit  50%

27. Government or any local authority to be utilised for any charitable

Purpose other than the purpose of promoting family planning    Limit  50%

28. An authority constituted in India by or under any law enacted either

For the purpose of dealing with and satisfying the need for housing

Accommodation or for the purpose of planning, development or

Improvement of cities, towns & village, or for both     Limit  50%

29. Any corporation specified in section 10(26BB) for promoting the interest

Of minority community         Limit  50%

30. Government or any approved local authority, institution or association to

Be utilised for the purpose of promoting family planning     Limit  100%

31. Any temple, mosque, gurdwara, church or other place notified as historic,

Archaeological or artistic importance or to be a place of worship by the

Central Government (for renovation or repair)     Limit  50%

32. The Indian Olympic Association or to any notified institute for development

Of infrastructure for sports and games or sponsorship of sports and games

In India (only donation by a company)      Limit  100%

8.9 Deduction under Section 80DD & Section 80 U

Deduction in respect of Handicapped/Disabled Person

Applicable to: A resident individual (irrespective of citizenship) or a resident HUF

8.10 Deduction under Section 80TTA

Applicable to: An individual (other than senior citizen covered u/s 80TTB) or a Hindu Undivided Family.

Conditions to be satisfied

Gross total income of an assessee includes any income by way of interest on deposits (not being time deposits) in a savings account with:

-         a banking company;

-         a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

-         a Post Office

Quantum of deduction

Minimum of the following

a. Interest on such deposits in saving account

b. Rs 10,000

Note: As per Notification No. 32/2011 dated 03-06-2011, interest on Post Office Saving Bank is exempt u/s 10(15(i) to the extent of the interest of Rs 3,500 (in case of single account) and Rs 7,000 (in case of joint account)

8.11 Deduction under Section 80TTB

Applicable to: Senior Citizen

Conditions to be satisfied

Gross total income of an assessee includes any income by way of interest on deposits (not being time deposits) in a savings account with:

-         a banking company;

-         a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

-         a Post Office

Quantum of deduction

Minimum of the following

a. Interest on such deposits in saving account

b. Rs 50,000

Note: Where such income is derived from any deposit held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed.

8.12     INCOME TAX RATES FOR THE ASSESSMENT YEAR 2020-21

(FY 2019-20)

There are three categories of individual taxpayers:

• Individuals (below the age of 60 years), which includes residents as well as non-residents
• Resident senior citizens (60 years and above but below the age of 80 years)
• Resident super senior citizens (above 80 years of age)

Slab Rates for Individuals (below the age of 60 years)

Slab Rates for Resident senior citizens (60 years and above but below the age of 80 years)

Slab Rates for Resident Super senior citizens (above 80 years of age)

Points to remember:

1. The rates of the income tax slabs mentioned above do not contain surcharge and cess. While computing the taxable income using tax calculators, both are considered additionally.

1. If the income ranges in the tax bracket of 50 lakhs to 1 crore rupees, the surcharge is 20%.
2. For income falling into the tax bracket of 1 crore to 2 crore rupees, there is a 15% surcharge.
3. 25% surcharge is applicable if the income lies in the tax bracket of 2 crore rupees to 5 crore rupees
4. 37% surcharge is applicable if the net income exceeds 5 crore rupees.
5. 4% health and education cess apply to the income tax and surcharge.

2.     The income tax slabs and rates are the same for both men and women.

3.     If your income lies in the tax bracket of up to 5 lakh rupees, you are eligible for a full tax rebate under Section 87A of the Income Tax Act 1961.

Computation of Tax Liability

8.13 SOLVED EXAMPLES

Q.1 (PGBP + IFOS + Deduction)

From the following Profit & Loss Account of Mr. Swaraj, Pune compute his total taxable income & Tax Liability from for A.Y 2020-21

Additional Information:

1. Printing Stationery & Advertisement Expenses is 50% related to Private purpose.
2. Allowable Depreciation as per Income Tax Act Rs 90,000.
3. Business receipts Rs 90,000 is not entered into Profit & Loss Account.
4. Depreciation on Patents @ 25% is allowed as deduction.

Solution:     Mr Swaraj

Statementt showing calculation of total income & tax liability for AY 2020-21

Notes:

1. Income tax , wealth tax and penalty on GST are expressly disallowed.
2. Patents made during the year are of capital nature, hence disallowed.
3. Bad debts recovered are assumed as business incomes in absence of information.
4. Dividend on shares & FD interest are non business incomes.
5. Calculation of Tax Liability

Q.2 (PGBP + IFHP + IFOS + Deduction)

The following is the Profit & Loss account for previous year furnished by Mr. Sagar for financial year ended 31st March, 2020. (AY 2020-21)

Additional Information:

1. Salary includes Rs. 4,200 paid to domestic servant.
2. Advertisement includes Rs. 550 as expenditure incurred for selling house hold furniture.
3. Allowable depreciation as per Income Tax Rules Rs. l4,000.
4. VAT includes Rs. 500 as penalty for not filling return in time.
5. General expenses include Rs. 5850 as the gift given to friend on his marriage ceremony.

You are required to compute total Taxable income & tax liability thereon for relevant A. Y. 2020-21 of Mr. Sagar.

Solution:

Mr Sagar

Statement showing calculation of total income & tax liability for AY 2020-21

Notes:

1. Personal expenses like salary to domestic servant, advertisement for personal sale of asset and gift to friend are disallowed.
2. Income Tax and any penalties are expressly disallowed.
3. Depreciation as per P/L A/c is disallowed.
4. Bad debts recovered (not allowed earlier as deduction) is not taxable. Hence deducted.
5. As the total income is below slab limit, no tax is to be paid by Mr Sagar.

Q.3 (IFS + IFHP + PGBP + CG + IFOS + Deductions)

Mr. Avinash aged 50 years working in PQR Ltd., Mumbai. He has furnished the following details on his income for the year ended 31.3.2020.

Compute total taxable Income & Tax liability of Mr. Avinash for the A.Y. 2020-2021.

Solution:

Mr Avinash

Statement showing calculation of total income & tax liability for AY 2020-21

Note: Calculation of Tax Liability

Q.4 (IFS + PGBP + IFOS + Deduction 80G)

Mrs. Sharma is working in Mahendra Ltd. Delhi. She was furnished the following details of her income for the year 20l9-20.

1. Basic salary Rs. 28,000 p.m.
2. D.A. Rs. l7,200 p.m. (not considered for retirement benefit)
3. Bonus Rs. l,00,000.
4. Entertainment allowance Rs. 600 p.m.
5. Transport allowance (for coming to office & going back to her residence) Rs. l800 p.m.
6. Agricultural income from land situated at Sri Lanka Rs. 30,000.
7. Income from business Rs. 45,000.
8. Income from unit of UTI Rs. 4,500.
9. Interest on Debentures Rs. 12,000
10. She has taken life insurance policy of Rs. 2,00,000. LIC premium of Rs. 25,800 & professional tax Rs. 2,500 is paid by employer.
11. Repayment of loan borrowed for higher education of her son Rs. 59,000 including interest Rs. 29,000.
12. She paid donation to the Government for the promotion of family planning Rs. 5,000 & Prime minister drought relief fund Rs. 5,000.

Compute the total taxable income & Tax payable by Mrs. Sharma for AY 2020-21.

Solution:

Mrs Sharma

Statement showing calculation of total income & tax liability for AY 2020-21

Note:

1. LIC Premium-  Lower of

1. Premium Paid       Rs 25,800
2. Limit of 20% of sum assured (2,00,000 x 20%)  Rs 40,000 Rs 25800

2.      Calculation of limit for Donation to Government for Promotion of Family Planning

3.      Calculation of Tax Liability